How to Guarantee an Income Stream Throughout Your Retirement

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5.26.23: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Producer:
Any examples used are for illustrative purposes only and do not take into account your particular investment objectives, financial situation or needs and may not be suitable for all investors. It is not intended to predict the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.

Producer:
Welcome to Safe Money Masters with Greg Castle. Get ready for a full hour of financial information and economic news you can't afford to miss. Greg works hard each and every day to help hard working Americans like you navigate challenges and reach the financial freedom they desire and deserve. So now let's start the show. Here's Greg Castle.

Greg Castle:
Hello and welcome to Safe Money Masters, where we help you become masters of your money and teach you how to keep it safe. I'm Greg Castle and I'll be your host, along with my co-host and producer Matt McClure. Say hi, Matt.

Producer:
Hi, Matt. Good night.

Greg Castle:
Gracie. Glad to have you here, Matt.

Producer:
Thank you. I'm glad to be a.

Greg Castle:
Part of it. Well, we hope everybody had an enjoyable Memorial Day weekend and made it back safe and sound from wherever you happen to travel to for the long weekend. We also hope you took time to remember the reason for the holiday, and that is to honor the memory of the brave men and women who made the ultimate sacrifice to keep this country safe and free. As a veteran, it's something that's never very far from my heart. So make sure that, you know, you you pay a moment of silence for those fallen. Anyway, you can catch us every Tuesday evening at 6 p.m. on Moneytalk 1010 or on your local FM station's 92.1 or 1 103.1. If you want to learn how to keep your retirement funds safe from market volatility or if you want to create an income stream that you can outlive or you want to mitigate taxes and inflation, then you are in the right place. So if you happen to miss an episode, you can catch the replay on Safe Money Masters.com or wherever you listen to your favorite podcast. Also, you can check out our YouTube channel and subscribe to see weekly video highlights and special content. And if you have questions or comments, feel free to email me at Greg@SafeMoneyMasters.com or call me (813) 430-7100. Hello Matt. How are you?

Producer:
I'm doing well, sir. I had a great relaxing Memorial Day weekend, as you mentioned a little bit earlier, though, keeping in mind, obviously the point of it all, which is very important, but hope you had a great one as well. The weather wasn't so cooperative here in Georgia where I live, but, you know, made the most of it anyway.

Greg Castle:
Well, you know, it was it was it was a good weekend. All weekends are good. Finally, take some time off and take some rest.

Producer:
And now wholesome financial wisdom. It's time for the Quote of the Week.

Producer:
This time around. From the British author Jonathan Clements. Clements spent almost two decades as financial columnist for The Wall Street Journal as well. And Jonathan Clements said this, quote, Retirement is like a long vacation in Las Vegas. The goal is to enjoy it to the fullest, but not so fully that you run out of money.

Greg Castle:
So what do you think about that, Matt? Well, you.

Producer:
Know, I have been to Vegas a few times in my life, and I can say that is a very appropriate quote for me and, you know, speaks speaks to me quite a bit because, you know, sometimes I will I will come back and I will not be feeling the pain of my Vegas trip. Other times, I'm like, you know, why didn't I? Why didn't I stop playing at this time or that time? It's it's all a gamble. And that's why Vegas is Vegas.

Greg Castle:
That's it. You know, it's just a you know, you go out and you should have a budget on how much you're willing to play with because it's fun to play, go out and, you know, play to to whatever your your limit happens to be and then, you know, make sure you don't exceed that limit. But. I know a lot of folks and I've seen a lot of folks out there as I'm playing that. You know, blackjack tables are something that will you know, they'll be down and and they're trying to play catch up and they'll play catch up all week. And at the very week you can tell those that are miserable because they're the ones who have definitely exceeded their budget. So anyway, so by the way, Jonathan Clements, I did some research on him and he actually is a graduate. He's a British and British gentleman. Still with us. He's a graduate of the very prestigious Cambridge University. And and he's been part of a number of financial institutions as well as, as you mentioned, being a financial columnist for The Wall Street Journal. So, folks. We got another packed show for you today. Time permitting, we're going to talk about a number of interesting topics. We're going to start by testing your financial savvy with a new segment that we call Right or Wrong. Then we'll discuss some of the consequences of withdrawing your retirement savings early. We're also going to attempt to help you understand the five types of annuities. We hear that question a lot. What are annuities? What type are they? There's really various types for different needs. So the five types of annuities and what each can do for you. Um, we will talk about some financial moves that's going to help you reduce stress and anxiety. And we'll step back for a moment in time with This Week in History. And we'll end the show with a question from one of our listeners, actually from South Carolina in our Ask Greg segment. So, Matt, if you're ready, let's go ahead and jump right in with a new segment of Right or Wrong.

Producer:
Come on down as we test your financial knowledge in right or wrong.

Producer:
You can play play right along with us here because we're going to treat this a little bit like a game show. You do not win any prizes, not not prize, just pride of answering the question correctly if you do. But what I will do is I will present a statement. Greg will tell us whether or not that statement is right or wrong. So here we go. We're going to start with statement number one in right or wrong, the first time out here on Safe Money. Masters So the Social Security Administration has come out and stated that if no changes are made, the Social Security trust funds will be depleted by 2034. Greg, is that right or is that wrong?

Greg Castle:
If you thought that was wrong, you're wrong, unfortunately.

Producer:
But in this case, two wrongs do make a right.

Greg Castle:
That's exactly it is right. Uh, you know, what people have speculated for decades appears to be coming true in about ten years from now, Social Security, as we've talked about before, has a funding problem. It's in need of some serious changes in order to continue paying benefits for both current and future retirees. And that's why we stress the importance of having a strong income plan and not counting on Social Security in its entirety as the main component of your retirement, because if it's reduced by 25 to 33%, that can really put a ding in your retirement plans. So what's next? What's what's the next wrong or right question, Matt.

Producer:
All right. So statement number two and right or wrong, if your employer does not offer a pension or another defined benefit plan, there is no other way to establish a personal lifelong income stream. Is that one right or is that one wrong?

Producer:
Greg Hmm.

Greg Castle:
Let me think. Well, if you thought this one was right. You're wrong. Because it is wrong. Annuities allow anyone to protect and grow their wealth. It helps you establish an income stream that you can outlive, and that's something that's really important. As a matter of fact, fixed index annuities are often used to create personal pension plans, and they're great for pre-retirees and retirees. The investment performance is linked to an actual index, but you're not actually invested in the index, so it gives you the opportunity to enjoy market type gains without having to worry about market volatility or loss because you can't lose a penny of your principal or credited interest once it's once it's credited to your account. So you have a zero floor. Can't lose anything. It can go up, can never go down. You're 100% protected. Um, also some annuities offer bonuses. So if you're considering taking a lump sum versus a pension from your work, schedule, an appointment with this so we can review your options and, and help you to maximize what you've worked so hard for. You can give us a call at 813. 4307100.

Producer:
All right. And of course, we'll have more on annuities, the different types of annuities coming up in just a little bit here on the show as well to kind of answer some more of those questions as to what those are actually all about and the different kinds of what they might be able to do for you, because they do have different uses at different times and different situations in people's lives.

Greg Castle:
That'll be that'll be one of my favorite segments, Matt, because I'm a big fan of annuities for retirement planning. Yeah.

Producer:
And as you said, you know, it's a question that you get a lot. So it's great to, to, you know, with the with the show here, be able to put the information out to a large number of people at one time. So because if people if it's a if it's a question that people have for you when you're talking to them one on one, chances are a lot more people have that question, too. So there we go. That's what we're here for, to to educate, to answer those questions. And that's what we like doing. So there we go. All right. So, so far, batting 500 in the right or wrong batting average here. Still Hall of Fame numbers, but we'll see if we can improve on things with statement number three. Once you turn 65 years old, Medicare will cover all of your health care costs, including any long term care needs. Is that right or wrong, Greg?

Greg Castle:
Unfortunately for retirees, this is wrong. You know, a lot of people believe the government is going to take care of them when they and their medical expenses once they retire or on Medicare. But unfortunately, this is not really the case. You need to be prepared for any and all of the costs during retirement, such as monthly Medicare premiums. A premium for this year actually is $164.90 for the basic premium, but it can be double or triple or quadruple, depending on your income level. You got to be prepared for annual deductibles, the deductibles, 296 bucks per occurrence, and typically it'll cover 20% of the actual charges in Part B. Part A is also the same thing. Part A is what you paid for all these years out of your the deductions, out of your paycheck. That covers part A, that's the hospitalization portion. Part B you pay for. You got to be prepared for co-payments. We just talked about prescription drugs. Medicare does not cover prescription drugs unless you take out Part D, It's a separate cost out. On Part D is going to be based on your premiums. You pay for the basic portion. You got to be prepared for services that aren't covered by Medicare. Things such as vision and dental care, vision and dental care are not covered by basic Medicare. And of course, long term care. Unfortunately, Medicare is not a long term care plan. So if you had to be confined to an assisted living, a nursing home, or even need at home care. I mean, Medicare is not going to cover that cost for you.

Producer:
And it's something that a lot of people don't really even know or think about or realize that long term care is not something that that Medicare will cover. Hospital stays. Yes, up to a certain amount of time, but not any long term care, like, as you say, nursing, home assisted living, that kind of thing. That's something that you are going to have to plan for yourself. So there we go. That was question number three. We got one more here. Maybe I'll see if we can make it back up to 500 and get another one correct in right or wrong. Last statement here is you can use an annuity to fund your Medicare expenses during retirement. Right or wrong, Greg.

Greg Castle:
So tricky one with the answer is right. You know, we believe it's really a smart idea to do something like this. You can use something like an income annuity, a deferred income annuity you take out earlier. And it's a great step to ensure that you and your spouse are able to to be able to fund expensive health care costs during retirement. If you plan ahead, you can avoid a dread. So it is a it's a good thing to do. So if you have questions about your Social Security, Medicare or annuities, then email us at Greg@SafeMoneyMasters.com. Or you can give us a call at (813) 430-7100. We can answer all your questions about retirement.

Producer:
You know, a lot of people now, especially in the in the current economic climate that we are dealing with and have been dealing with, with inflation and all that, people are seeing their dollars and cents not go quite as far as they used to. And so people might be considering, okay, how am I going to, you know, help make ends meet or how am I going to pay for this, you know, thing that just broke down in the house? I need a new AC unit and it's about to get really hot outside all of those types of things. Well, one of the things that people might be considering is tapping into their retirement savings. But we've got three things here to consider if that is something that you are considering doing. And number one, Greg, is the taxation on withdrawals. You might think that that's just your money that's sitting there and you can just, you know, grab it. No, no questions asked, anything like that? No, not quite.

Greg Castle:
No, you're right. It's not all your money. Uncle Sam is a part owner of all your money in this case, unless you've already paid taxes on it and you have a Roth or 401 Roth 401 K or a regular Roth or Roth IRA, the IRS is going to tax you currently somewhere between 10 and 37% as you make as you make withdrawals from your retirement plan. That's going to depend on your tax bracket. And actually, that tax bracket will change beginning 2026 or at the end of 2025. So beginning of 2026, the Tax Cut and Jobs Act from 2017 goes away. So we know that the rates are going to change at that point from from 10 to 37 to something like 12 to 39. Um, so anyway, currently though, it's 10 to 37% depending on your income bracket as a result, whenever that you decide to make a withdrawal from your qualified plan unless it's a Roth or 401 K Roth 401 K or a Roth. You got to you got to take a look and include in that you have to withdraw enough to cover the debt. You want to pay or whatever you want to buy. And you got it. You got to go beyond that amount in order to make sure that you get enough to do what you want to do, because taxes are going to have to be paid on that. So if you're going to for example, if you're going to deduct or you want to take out $10,000 for something, then you can expect you're only going to get somewhere between 6300 and and 9000 depending on your tax bracket. So you've got to take more money out to cover the taxes along with what you're wanting to pay off in order to be covered. So taxation on withdrawals is one of those things you really have to consider when you're looking to tapping into retirement savings. What's next?

Producer:
Well, number two then is early withdrawal penalties. That's something else to be concerned about if this is something that you're considering.

Greg Castle:
It is. There are certain situations that this does not apply, but in most cases, if you're under 59.5, when you decide to take a withdrawal, you're going to end up paying a 10% IRS penalty for the amount you're withdrawing. For example, again, if you withdraw $10,000, you're only going to get nine because $10,000 is coming out in taxes plus accrued taxes. But in penalty plus, you're going to pay the taxes on the full amount you withdrew. So, again, if you're going to if your tax bracket happens to be 22% and you're going to pull out, you know, $10,000, you're going to pay the 22% taxes, which is going to be leave you with, what, 78,000, and then you're going to end up with another $10,000 correction, a 10% penalty out of the $10,000. So it's another $1,000. So you're basically you know, you're you're what, 7800 is going to leave you $6,800. Wow. So you're getting up having to take out like $14,500 in order to cover the withdrawal. In order to do what you want to do, I should say. So, again, Roth accounts do not apply for that or apply to that. And there are exceptions. For example, I deal a lot with federal employees and federal employees. They have a contingency plan that's especially for federal employees, that because there's many there's several categories that have early retirement mandatory. For example, air traffic controllers. I used to be one of those years ago back in the Air Force, didn't retire from that. But also firefighters and federal police officers, they have mandatory retirements. Air traffic controller has to retire prior to their 56th birthday. Uh, firefighter, Christian law enforcement and firefighters, I think is 57. I know, I know that law enforcement is 57. And so they're allowed to actually withdraw from their TSB, which is the federal for one, without that 10% penalty once they retire. But not until. So I've got law enforcement officers that retire as early as 50 and they have access to their to their spouse. So, you know, good for them.

Producer:
Well, the third thing to consider, if you are perhaps thinking about dipping into those retirement savings early, is your future retirement savings. You know, if you if you chip away at that number that you have right now, you know, does that set you back?

Greg Castle:
Everyone should be saving a portion of their money for retirement, unfortunately. There's about, I think, 55% of Americans that are behind on saving for retirement. And there's another percentage that have very little of anything for retirement. And unfortunately, if you withdraw money ahead of time, it only compounds the problem. The less money in your retirement account, obviously, the smaller your returns are going to be, which means you're going to have less money for retirement. Making up years of missed wealth accumulation can be challenging. A more moderate option, basically something to consider. And again, it's it's something everybody's different. Rather than make your full contribution to your qualified retirement plan, you might want to consider making a smaller or reducing the amount that you're giving to the qualified plan and use that money for paying off debt. Uh, or stop it altogether, depending on which debt you actually have. Why you won't put more money in your retirement account. You're basically going to leave existing funds intact. So you're basically going to earn a more substantial returns on those particular investments that you have.

Producer:
Yeah. And that's actually, you know, something to consider if you because, you know, being out of debt, you are then still paying yourself in a way because as we say, pretty often the happiest retirees are those who don't have any debt. And, you know, even including the House, if you're able to pay the house off, that's another great thing to do. So getting rid of the debt is like almost like giving yourself a raise anyway, you know?

Greg Castle:
Yeah, we'll talk about that particular issue actually in a later segment when we get into how to how to resolve stress and or how to reduce stress and anxiety in retirement. So what are we going to cover next? I think it's one of my favorite topics.

Producer:
Yeah, here we go. This is going to this will be a good one because we're talking about and we've mentioned these previously when we were playing right or wrong here just a little bit ago in the show are annuities and they're actually several different types. We're going to cover five types of annuities now and what each of them can do for you and the first type is called a sPIa or a single premium immediate annuity. So talk about that one first. Greg.

Greg Castle:
Yeah, let me talk about all of them in general. First is that there's so much confusion out there around annuities. I mean, you have you're going to hear people say bad things about annuities. You're going to hear that some have high fees. You're going to hear that, you know, for example, Ken Fisher and Fisher Investments takes out full page ads in The Wall Street Journal basically says, I hate annuities. You should, too. You should take a look sometimes and do a search on Ken Fisher and why he loves annuities. He's got some really interesting some some interesting facts whenever that you see that. And Ken Fisher is basically talking about one type of annuity we'll cover in just a second. But not all annuities do the same things or are the or actually perform the same way. Annuities can actually be one of the best things you can do for your retirement. They several of them can provide actually, most of them provide guaranteed lifetime income that you can outlive. So if you're pretty healthy and you've got good genes, then, you know, maybe an annuity might be a good thing for your future anyway. So single premium, immediate annuities basically are called Spears Spears just the acronym. And ironically, it's the oldest type of annuity and dates back to the Roman Empire. It's the type of annuity that the soldiers from the Roman Empire were actually paid with.

Greg Castle:
So they basically they got a stipend once that they were in the military and that stipend was continued to pay to them until they passed away. The spear is basically purchased with a large upfront payment payment, basically a single premium, as it says, and it begins paying you back principal with interest immediately. Now you can opt for payments over a set period of time, which is called period certain. Uh, or you can take payments until you die. That's basically a lifetime sphere. Now, the longer the time period, the lower the payments going to be. So if you take it for life, the single premium annuity annuity is going to be based on your life expectancy and your account value. So you're provided you're relatively young when you take a spear, which I don't necessarily recommend you do a spear if you're relatively young, even in retirement, if you're relatively young in your 50s or 60s, then basically your your payout is going to be relatively low because it's going to cover your entire life. Some of the advantages of a spear is it's easy to understand. It's nothing complicated about it. You give them money, they give you money back. It's guaranteed reliable long term payments. They're going to they're going to guarantee you a set amount of income for either the period certain ten years, 20 years, 15 years, or until you die if you if you elect lifetime payments.

Greg Castle:
Um, some of the disadvantages, actually. Some more advantages or disadvantages also is that you're going to get higher returns than you expect, than you would normally get because of something called mortality credits. And mortality credits is basically some people live longer than others that have these particular products. So as some people pass away the money that was in their pool that has since gone away is diverted to your pool of money. And that's all calculated in. One thing that the actuaries that insurance companies know, they know when you're going to die. They don't know who's going to die. They don't know the date, but they know roughly when you are expected to die based on life expectancy. So they calculate the mortality credits and included into the payouts to you. Another. By the way, there's this example of that that Tom Hegna uses, and it's basically if you want to understand mortality credits, use this example. You've got four old ladies in their 80s who go on a cruise. So on the cruise, one of the one of them suggests, hey, look, let's just put $100 into this box and at the end of the year we'll come back for another cruise and whoever's still alive will divvy the money up. Everybody's here. Let's take our money back. Right. So at the end of the year, one of the person dies, they go on a cruise.

Greg Castle:
Guess what happens? They forgot where they put the box. No, I'm kidding. Now, there's $400 to divide up between, you know, three people. So that's a pretty good return. They didn't do anything. They didn't invest in the stock market. They didn't you know, basically that's a mortality credit. The next year they come back, they decided to do something again. The now they got $4, $400 in the box. They go on the cruise, they come back. Another person had passed away. There's two people. So now they've each got a 100% return on their money because now they got $400 to split up between two people. Mortality credits. So so life insurance or basically annuities work that same way. They've all got mortality credits included in them. So some of the disadvantages, number one, you got low liquidity, you have some liquidity, but it's relatively low. You can pull some money out in most aggressive, most spears, a certain small percentage without a surrender charge without a risk. But that's okay. Also, you've got some inflation risk because if you have a guaranteed set payment, it may not keep pace with inflation. And also if you take the lifetime annuity and you use all your money, the money is going to go away when you pass away. In other words, when you die, if you're taking a lifetime annuity, whatever is left over goes into those mortality credits.

Greg Castle:
It does not go to your heirs. You cannot list a beneficiary in a lifetime, in a lifetime sphere. You take you can have a joint with your spouse. It's not a beneficiary. It's a joint annuity. You get a less payment because it's going to cover two lives. It's the last to die, in other words. So it's covering two lives instead of one. So the payouts are going to be lower. So who's it for? It's for those folks that have substantial retirement savings but have essential living expenses that aren't covered by reliable income. An example would be a widow who's 85 years old, has no living children and no children at all. And obviously the spouse has already passed away. They've got a house that nobody wants, nobody to leave it to. They've got a pile of money that they left to them. Some way they feel like they're in good health, but they don't have enough guaranteed income such as Social Security or pensions to cover those expenses. And so by swapping that pool of money for guaranteed lifetime income, they know that now they have not only Social Security, but they also have additional income stream that's going to last them the rest of their life. And once they did, they don't really care. They get nobody to leave the money to anyway.

Producer:
Talk now, Greg, if you will, about variable annuities.

Greg Castle:
Variable annuities have a space to be used. Basically, variable annuities are mutual fund investments that have got basically an insurance wrapper. They have some insurance related guarantees such as living and death benefits. However, the advantages you've got potential for higher returns. You've got tax deferred growth, you've got some degree of death benefit and some living benefits. But the disadvantage is in variable annuities. Typically variable annuities are the ones Ken Fisher talks about in his advertisement. They have high fees, typically between 3 and 4% or some as high as three and 4%. They're subject to market volatility. In other words, you can lose money. So those two alone, those two disadvantages alone is something that makes me. Uh, not only Leary, but I pretty much will never put one of my clients. Most of my clients are approaching retirement or in retirement unless they got, you know, mega millions out there somewhere. They can afford to lose a good bit. Variable annuities is not something that I'm going to talk to them about because I just don't think it's a great product for most retirees. Um. Who's it for? Well, it's better suited for people who are a decade or more away from retirement. In other words, you've got a long time to recoup the losses you may incur. So if you're within ten years of retirement, not a product that you should consider. So what is next, Matt?

Producer:
Well, next, we're going to talk about multi year guaranteed annuities, also known as migas. Yep.

Greg Castle:
So migas migas offer a predetermined and contractually guaranteed interest rate for a fixed period of time. Matt. They in other words, migas are usually very short term. Typically they're, you know, like two, 3 to 5 year, occasionally have a seven year, but usually five years or less. They basically help to supplement your Social Security or any tax advantaged retirement accounts you might have. Another good part, another advantage of them is that the rate is guaranteed. That's what it says multi year guaranteed annuities. In other words, your rate is guaranteed and that rate is guaranteed for the life of that particular annuity. And right now they're actually pretty good. Right now you can get migas five year mega for around four and a half to 5% return. So that's not a that's not a bad return for a short term investment. Especially with the climate right now where the market's been very up and down lately, and lately it's been more down than up. And with the debt ceiling looming as we record this, it's highly probable that we're going to see more downturns in the next few days. But we'll see what happens. The rates guaranteed, it's usually higher returns than a bank's CDs. They were originally actually, they came on market to compete with bank CDs. And in order to do that, they actually pay a higher rate. They're not subject to market volatility.

Greg Castle:
And again, you know, you do have some partial liquidity now, some disadvantages, some markets not all, but some markets for some carriers may have a small fee. It's not an excessive fee. But, you know, look at the stated look at the stated return, the the guarantee rate. And if it's got a fee, just make sure that the guaranteed rate minus the fee is going to give you a good return. In most cases, the ones I deal with do not have fees, so I wouldn't worry about it. Who's it for? Well, this is a particular better suited for people nearing retirement versus younger savers. It's also a great product for those who want a better return than they're going to get in a bank CD and also if they want a safer return. Because, you know, right now banks have been pretty volatile. We heard about, you know, Silicon Valley Bank. We heard about some of the other banks that have gone bust in recent history. And there's a couple more that are on the bubble. So if you're a CD, you know, lover and you want a better return, give me a call. We'll talk about we'll talk about Micah's multi year guaranteed annuities. You can call me at (813) 430-7100. So now we get into the last two types. Matt, what's the first one?

Producer:
Well, the first of those is, is fixed annuities. I feel like maybe that's one of the ones that people might be a little bit familiar with or at least have heard have heard of. And yeah, those, those are, I guess, probably ones that have been around a little bit longer, maybe not quite dating back to Roman times, the fixed annuity, but still they've been around for a while.

Greg Castle:
Yeah you're right. You know fixed annuities, a basic fixed annuity is an insurance contract that promises to pay a buyer a specific guaranteed rate interest rate on their principal. Some of the advantages is that the minimum rate is guaranteed for a period of time, usually on a fixed annuity. It's a slightly longer period of time and usually, you know, seven, ten, 14, 15 years you have options anyway. The fixed annuities have predictable investment returns, which is great. It's also got tax deferred growth. You got safety, you got guaranteed lifetime income. You know, one of the drawbacks or some of the drawbacks, you know, you got limited liquidity. Typically you can pull out between 5 and 10% per year without a surrender charge. And the surrender charge is the next disadvantage. Surrender charge pretty much equates back to an early withdrawal penalty for a bank CD. In other words, you give the bank money so they can use it to lend to other depositors and stuff for a period of time. Whatever the whatever the term of the CD is going to be, if you pull it out early, then you're going to have that early withdrawal penalty from the bank. Surrender charge is the same thing you give an insurance company who basically handled the annuities. You give them a degree or a pot of money and you say, okay, I'll let you use it for this period of time. If you decide to pull it out earlier, typically you've got a declining early withdrawal penalty known as a surrender charge. In other words, it declines every year. Every year that penalty gets less and less until the maturity of the annuity happens. Um, and again, fixed annuities. Some carriers may charge a small fee for their fixed annuities. Many do not. So fees don't always come into play. And as far as who is it for, it's for retirees or those nearing retirement basically who want safety and guaranteed lifetime income. Income that you can outlive. That's not subject to market volatility. All right. So we're down to one of my favorite types of annuities, which is the last one. What type is it? Yes.

Producer:
So we just talked about fixed annuities. This one has a very similar name, but it's got a very important third word in the in the title there. Fixed indexed annuities. And these have are a type of annuity that's really been growing in popularity. And I think for good reason.

Greg Castle:
The fixed indexed fixed index annuities came about in the late 90s. The annuities today is not the same annuity as your grandparents or even your parents took out in most cases. The fixed index annuities are basically an insurance contract. The provide you with an income in retirement. Okay. It's tied to an index, but it's not actually invested in the index. And there's a number of different indexes. You've got some of your recognized like Nasdaq, Dow, S&P 500 is various versions of S&P 500 indexes that annuities use. You've also got proprietary indexes like the Barclays Atlas, five Nasdaq Generations, five Credit Suisse Ravens PAC. And there's more and more and more, there's just tons of different options that are proprietary. And normally the proprietary indexes are basically volatility controlled. In other words, they have a percentage, usually around 5%, where that's the volatility index that basically it shouldn't go. You shouldn't lose more than 5%. You can't lose anything. But the index itself, the investments in there should not lose more than 5%. As a as an annuity holder, your money is guaranteed mean you can never lose a penny of your principal or credited interest, which is basically one of the first advantages. You got safety, you can't lose a penny of your principal. You can't lose any of your credited interest. Credited interest is usually or interest is usually credited once per year because most indexes are annual point to point. There are some two year point to point which don't necessarily like them very much because it could actually diminish the amount of gains you get.

Greg Castle:
And you've got some monthly point to point, which I really don't necessarily like all that much because again, it can overall reduce the amount of gain that you end up with, in my opinion, and it's my opinion ought to be yours. The. You've also got, you know, already mentioned guaranteed income for life, but you've also got tax deferred growth. You've got potential gains that can be equal to or higher than the markets without any risk. So that's why I love this product. Disadvantages, just like the fixed annuities, you've got limited liquidity. In other words, these typically let you take out 5 to 10% of your account value. So as your account value grows, whatever the account value happens to be, you can access 10 to 15% without that surrender charge penalty. You've also got, like I said, with surrender charges. One of the drawbacks as well. We've already talked about surrender charges and what they are. In some cases you may have a small fee. Again, there are a number of annuities out there, fixed indexed annuities that have no fees at all. Now, some you have to pay for some of the living benefit riders, such as a well-being rider or even sometimes an income rider. You got to pay fees for them. But there are a lot of annuities out there that charge you no fees at all for those particular riders.

Greg Castle:
And, you know, again, you may have a cap or participation rate that may limit gains. For example, if the market goes up 20%, you may have a cap of 13%, which means basically that you're not going to get the full 20% gain. You're going to get 13% in that case. However, if the market loses 20%, you're not going to lose 20%. You cannot lose a penny of your principal or credited interest. Okay, so who's it for? Um, retirees or those nearing retirement and those who want to make market like returns with guaranteed safety where they can't lose anything. So if you're interested in learning more about how annuities might fit into your retirement plan, then by all means we would love for you to give us a call at (813) 430-7100. Or you can email me directly at Greg@SafeMoneyMasters.com and we'll provide you with a detailed roadmap. Retirement roadmap actually, and even help you establish your own personal pension plan, because that's what an annuity does, is help you create your own guaranteed lifetime income like a pension plan does, like Social Security is supposed to do. So that's why I love these particular products. So I could talk about these all day long. I could gush and gushing gush and give them blue ribbons and all that good stuff, but we should probably move on for the sake of time. Matt, what have we got next?

Producer:
Yeah, giving out those first prize blue ribbons here to the annuities. Gold stars. Yeah, exactly. You get a gold star with.

Greg Castle:
The exception of the variable annuity. No gold star for the.

Producer:
Variable, right? Right. They lump of coal in the stocking at Christmas, Maybe.

Greg Castle:
Exactly. Well.

Producer:
There you go. Well, in our last oh, we got about 12, 13 minutes here left in the show, Greg. But we're going to go through these seven financial moves to reduce stress and anxiety. And there's a lot of stress, a lot of anxiety out there. I think in general, when you're trying to plan your financial future because there's a lot there's a lot riding on it, a lot of pressure on you, especially if you're trying to go it alone. But we're here to reduce some of that because especially today, there's a lot of stress and anxiety given a lot of the things that we've been talking about. We've been mentioning things like the market volatility situation, inflation, all of that stuff that's that's been wreaking havoc on all of our finances. So, you know, we want you to be able to reduce all of that stress and that anxiety. And we've got seven ways to do it here.

Greg Castle:
Great. What's the first one, Matt?

Producer:
So let's go through this one. And you know, of course, this reminds me of the old Bobby McFerrin song, by the way. Don't worry, be happy. I think we should like have that playing in the background as we talk about these.

Greg Castle:
Yeah. Tom Hegna has got a book out called said Don't worry Retire happy. So a lot of that most of you or many of you have seen that on the PBS special that run. They've been in, what, 80 countries and over 80 million people have seen it. So it's it's pretty popular recording. Yeah. Anyway, first one well the.

Producer:
First one here first financial move to reduce stress and anxiety is have an emergency fund in place. Boy, that can do a lot for you financially and a lot to reduce the gray hairs coming in.

Greg Castle:
Exactly. You know, as we talked about, I think in the last show, it's really important to have 3 to 6 months of expenses ready in a in a combination of bank deposits and cash. And the reason for that and somebody reminded me of that, a friend of mine reminded me of this this past week is one of the examples I gave, wasn't the one he was facing anyway. So if something were to happen that, you know, for example, your air conditioner goes out and you've got to replace it or your transmission goes out and you've got to replace it, you know, you need to have money on hand to make sure those things happen. So 3 to 6 months would do it for most people, depending on how much guaranteed income you have coming already, you've got Social Security coming in, you've got a pension coming in. Maybe you don't need the full six months, but I would certainly have some money set aside to cover those periodic expenses like we talked about an air conditioner crash or or or transmission replacement or something like that. What's next?

Producer:
Well, number two, in our list of financial moves to reduce your stress and anxiety, keep track of your net worth. It's like, you know, keep keeping that that snapshot in time, knowing what your situation is as you go through your life. Very important.

Greg Castle:
Yeah. And the consulting world, you know, I spent a couple of decades in over the years there's an old saying that said what gets measured gets done. Right. So in order to measure things, you've got to monitor things like your debts, your assets, your income sources. You got to know, you know. Where you stand. You got to know your whole financial picture because by knowing your numbers and it's important to know your numbers both, you know, liabilities and assets. It helps you set more realistic goals. So consider working with a financial advisor or professional. If it's not me, at least find one that you trust and like who can help you analyze your current situation. And what's next? Let's do number three, Matt. Well, number.

Producer:
Three is live below your means and own an affordable home. Very important there. You got to you want to have more money than month, not more month than money, basically.

Greg Castle:
Yeah, we talked about it again in another show. But the it's really important to live within your means. Again, we talked about, you know, trying to keep up with the Joneses next door. We talked about, you know, a lot of folks who have smiles on their face. They're they're out doing stuff. They've got, you know, fancy cars. They've got big homes, and they're mortgaged up to the hilt. They're miserable once they walk inside the door. So they're basically, you know, playing house without having the money to afford that house. And you don't want to be one of those folks. You want to be able to live within your budget, live within your means. Don't try and keep up with somebody else. Live a life that makes you happy, but don't splurge on things you really can't afford. So, you know, homeownership is attractive as ever. Granted, interest rates are higher than they've been in a pretty good while other than, you know, for the past year. But they've gone up a lot. They've come down a little. They've gone back up again since the last budget increase from the Fed. The but owning a house is still one of your your best forms of of equity down the road somewhere that you can use in your retirement if should you need to or choose to. So number four.

Producer:
Number four is okay, you've got that home pay off your home, you know, not having that big because obviously the mortgage payment is going to be the for the vast majority of people, the biggest payment that you have every month. But getting rid of that boy, that can reduce some stress.

Greg Castle:
Yeah. You know, the happiest retirees in the world are the ones with no mortgage payment. You look down the street and see those folks that, you know, just have no mortgage payment. I talk to folks all the time that are debt free. They have no mortgage payment. They don't like the Florida taxes. Property taxes are pretty high down here, but the mortgage payment itself is covered. So once that you have your forever home, you know, make it one of your primary goals to get that mortgage paid off as quickly as possible and get out of debt. Now, I'm going to put a caveat here. If you're close to retirement, you got money in your in your qualified retirement plan, your 401. 403, B, 457 TSP, whatever. That's getting a good return. And you got a low mortgage on your house, like, you know, -2.25%. So you're only paying 2.25% interest on your home and you've got returns that are averaging 4 to 6%. It does not make sense to pull money out of your qualified plan to pay off your home. Okay. You just need to find a way to get it paid off with money you already have. You know, rather than pulling money out of your 401. K or 403. B and and losing retirement income or facing a penalty if you're under 59.5. As we talked about before. So number five, Matt.

Producer:
Number five here is own safe and affordable vehicles. And both of those points are important, safe and affordable.

Greg Castle:
It's like when your kid goes off to college, you want to send them off in the clunker. But a lot of parents, you know, they they will they'll use their car for a pretty good while. And rather than, you know, buy the child or the the new graduate, you know, something else, they will pass that card down to them. And but they want to make sure when they send that child off to college, that that car is going to be safe and hopefully paid for by that point so they can afford to go and get something else. But anyway, if you're not a child going to college, you still want to make sure that, you know, when you look for a car, it's transportation, folks. You don't need a Lamborghini to get from your home to your work. All right. Now, if you got, you know, the income of a major League Baseball player or NFL, you know, athlete or a major music star or celebrity of some sort, even, that's kind of stupid. But still, you know, they you know, you might want to splurge for something and leave it leave it in a garage somewhere and shine it occasionally or have somebody shine it if you can afford it, whatever. But you need transportation. You need it to be safe. You need to be reliable to get from point A to point B, That's enough said about enough. Affordable and safe vehicle. Number six, man.

Producer:
Yes. Number six here is to establish an income plan that covers your expenses.

Greg Castle:
Yeah. And again, we're talking about planning. Know your numbers. You know, you got to plan ahead. You need a plan. I mean, you need a roadmap to get from where you are to where you want to be. If you if you were to paint a picture in your mind of your retirement and you know what is going to be like, is it going to be on a cruise ship? Is it going to be on an island somewhere? Is it going to be a second home? Whatever it's going to be all it takes some time is somebody, you know, putting your budget in front of your face or putting your expenses in front of your face, and all of a sudden that picture bursts like a balloon. So if you if you make a roadmap and you start planning on how to be able to achieve what it is you want your retirement to look like and be able to paint that picture in realistic paint, then basically you're going to need somebody's going to help you with this thing. You can't do it by yourself. You could, but there's a lot of things you won't take into account that a financial professional will be able to a to point you in the right direction on. So again, we hope that you will contact us. Again. (813) 430-7100. But if you already have someone you're working with or if you're if you know someone that you feel comfortable with, by all means seek out the help of someone. Just someone who can, who can point you in the right direction and build that roadmap for you, help you build it. So the next one.

Producer:
Matt All right, number seven, the last one on our list of things to do if you want to reduce your financial stress, consider life insurance options. I think this one gets overlooked a lot of the time.

Greg Castle:
Greg, your life insurance options. According to Ed Slott, you know, a famed IRA expert, basically says that, you know, the greatest gift that was ever given to humanity by the IRS is life insurance. Life insurance comes in many different types. You've got whole life which builds cash value. You've got term life which does nothing except protect your life. And you've got annuities. You know, any of those are basically insurance products. And with the exception of term life, they all provide benefits that help you out not only in retirement, but can also help you with estate planning. They can help you with avoiding probate. They can help you with so many different things. So again, you need to talk to a financial professional and we hope it's the folks at Castle Castle Financial Solutions because we are basically a safe money retirement strategist. We can help you find a way and build that roadmap that's totally safe. As a matter of fact, I'm in the process of writing a book. I'm afraid to give the title away right now because I'm afraid somebody will swipe it. But I'll go ahead and say it. I'm writing a book basically called, you know, Retire Without the Bull. And we're talking about avoiding the bull, you know, of the stock market and also in the process of avoiding the bear in the stock market.

Greg Castle:
So but retire without the bull. Keep your money safe. So now we get to the weekly mailbag or basically a section that we call Ask Greg. And for this week, we have a question from Susan in South Carolina. Question actually came up from something was said in our very first radio show a couple of weeks ago. The question is, can a single bank account be FDIC insured for more than $250,000? The accepted answer for most people is that no $250,000 is the limit. But that is not right. Yes, the FDIC insured deposits according to the ownership category in which the funds are insured and how the accounts are titled. That's the key. The standard deposit insurance coverage limit is $250,000 per deposit per FDIC insured bank per ownership category. Category deposits that are held in different ownership categories. Are separately insured, up $250,000. So money in a bank in different categories can each be insured $250,000. Here's where the caveat comes in, where you can actually increase the FDIC insurance limit from $250,000 up to 1.25 million. So it's a five time multiple of of what you were looking at before.

Greg Castle:
And that is by making a, quote unquote, payable on death designation. Um, an example of that would be, let's say, for example, you have an account and you add five beneficiaries to that account. You add a spouse and four children, and each one, you don't have to. They don't have equal amounts of beneficiaries. They could be a couple of can be given a dollar, but as long as you have four beneficiaries that are named, that provides another million dollars in coverage. So that leaves you up or leads you up to the $1.25 million per person. As long as those beneficiaries don't have other deposits in the same bank. So one of the caveats. So when an account's designated as payable on death, that person whom you've named becomes the owner of the account when you die. So keep in mind that you can't override your payable on death instructions once you've made them because they're a type of revocable living trust. And it's also with the will. So Susan, I hope that clarifies things for you and Matt. I think we're about ready to close out for the day, are we not?

Producer:
That's right. We're just about out of time here, folks. But if you've got a question for Greg, email him. Greg at savemoney masters.com. You never know. He might ask or answer that question after you ask it, of course, right here on the air. Once again, the email address, Greg at savemoney Masters.com. Well, that just about does it for this time around. Greg I have enjoyed it, learned a lot as I do each and every week. I'm sure our listeners have as well and we'll talk at you next time, sir.

Greg Castle:
Look forward to it and we certainly hope the listeners gain something. You know, our purpose is to basically make sure they're educated so they can keep their money safe. That's why we call ourselves Safe Money Masters. Anyway, have a great week, Matt, and I'll talk to you next week, same time. Your turn.

Producer:
Same bat channel.

Greg Castle:
So long, folks.

Producer:
Thanks for listening to Safe Money Masters with Greg Castle. You deserve to work with a financial expert who has a track record of helping clients exceed their financial goals by implementing safe and proven strategies to schedule your free No obligation consultation with Greg. Visit Safe Money Masters.com not affiliated with the United States government. Greg Castle does not offer tax, legal or investment advice. Consult with your tax advisor or attorney regarding specific situations. Opinions expressed are subject to change without notice. These opinions are not intended as investment advice, nor do they predict future performance of any product. All information provided is believed to be from reliable sources. However, we make no representation or warranty as to the accuracy of any statement. This information is intended to be educational in nature and does not provide a guarantee or specific result. All copyrights and trademarks are the property of their respective owners. AmeriLife assumes no responsibility or liability for the content of this message. The information contained herein is provided on an as is basis with no guarantees of completeness, accuracy, usefulness, timeliness or the results obtained from the use of this information.

Producer:
Fixed annuities, including multiyear guaranteed rate annuities, are not designed for short term investments and may be subject to restrictions, fees and surrender charges as described in the annuity contract. Guarantees are backed by the financial strength and claims paying ability of the issuer.

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